Question

Sarasota Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Sarasota employs a fiscal year ending May 31. Income from operations before income taxes for Sarasota was $1,539,000 and $725,000, respectively, for fiscal years ended May 31, 2021 and 2020. Sarasota experienced a loss from discontinued operations of $418,000 on March 3, 2021. A 20% combined income tax rate pertains to any and all of Sarasota Corporation’s profits, gains, and losses. Sarasota’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options. Sarasota issued 39,200 shares of $100 par value, 6% cumulative preferred stock in 2017. All of this stock is outstanding, and no preferred dividends are in arrears. There were 1,065,600 shares of $1 par common stock outstanding on June 1, 2019. On September 1, 2019, Sarasota sold an additional 403,200 shares of the common stock at $17 per share. Sarasota distributed a 20% stock dividend on the common shares outstanding on December 1, 2020. These were the only common stock transactions during the past 2 fiscal years. Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for: Weighted-average number of common shares (1) The year ended May 31, 2020. (2) The year ended May 31, 2021. LINK TO TEXT Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2021 and 2020. The statement will be part of Sarasota Corporation’s annual report to stockholders and should include appropriate earnings per share presentation.

Answer 1

Statement Showing Computation of Earnings Per Share
		(in $)
Particulars	May 31, 2021	May 31, 2020
Income from Operations before tax	1,539,000	725,000
Less : Taxes @ 20 %	307,800	145,000
Income from Operations after tax (A)	1,231,200	580,000
(Loss) from discontinued Operations before tax		-418,000
Less : Taxes @ 20 %		-83,600
(Loss) from discontinued Operations after tax (B)		-334,400
Total Net Income after Tax (A+B)	1,231,200	245,600
Less : Preference Dividend ($ 39200 share * $100 *6%)	-235,200	-235,200
Net Income after Preference Dividend	996,000	10,400
Earnings Per Share from Continued Operations = Net Income after tax less Preference Dividend/ Weighted Average Number of Shares	May 31, 2021	May 31, 2020
Earnings Per Share from Continued Operations (Income from Operations after tax- Preference Dividend (1)	996,000	344,800
Weighted Average Equity Shares (2)	1,615,680	1,368,000
Earnings Per Share from Continued Operations (1/2)	0.62	0.25
Earnings Per Share from Discontinued Operations = Income/(Loss) from discontinued operation after tax/ Weighted Average Number of Shares	May 31, 2021	May 31, 2020
Income/(Loss) from discontinued operation after tax	-	-334,400
Weighted Average Equity Shares (2)	1,615,680	1,368,000
Earnings Per Share from discontinued Operations (1/2)	-	-0.24
Statement Showing Computation of Weighted Average Equity Shares as on May 31,2020
Date of Issue	Numbers of Shares Outstanding	No of Month from Date of issue of shares till May 31, 2020	Weighted Average Shares (A*B/12 months)
	A	B	C
Opening	1,065,600	12	1,065,600
Sep-19	403,200	9	302,400
Closing May 2020	1,468,800		1,368,000
Statement Showing Computation of Weighted Average Equity Shares as on May 31,2021
Date of Issue	Numbers of Shares Outstanding	No of Month from Date of issue of shares till May 31, 2021	Weighted Average Shares (A*B/12 months)
Opening	1,468,800	12	1,468,800
Dec-20	293,760	6	146,880	See Note 1
Closing May 2020	1,762,560		1,615,680
Note 1
Computation of Stock Dividend issued
common shares outstanding on December 1, 2020	1,468,800
Stock Dividend issued ( 20% of common shares outstanding )	293,760
Hence,
Weighted Average Equity Shares as on May 31,2020 is	1,368,000
Weighted Average Equity Shares as on May 31,2021 is	1,615,680
Particulars	May 31, 2021	May 31, 2020
Earnings Per Share from Continued Operations	0.62	0.25
Earnings Per Share from discontinued Operations	-	-0.24
Total EPS	0.62	0.01